Wednesday, 24 February 2016 16:11

Australia offers a lifeline for two of SA's major construction companies

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As the tough conditions persist in SA, Australia offers a lifeline for two of SA's major construction companies.

Australia fillip for Aveng, Wilson Bailey Holmes Ovcon

As the tough conditions persist in SA, Australia has offered a lifeline for two of SA’s major construction companies.

Interim results out yesterday showed Wilson Bailey Holmes Ovcon (WBHO), the largest construction company by market capitalisation, is reaping the benefits of its timely entry into Australia’s residential building market, where Asian investors are propping up demand.

Aveng said that it remained optimistic about the long-term prospects for the Australian markets, even though revenue had declined as it completed multiyear projects in the sixmonth period.

WBHO reported a 15% jump in net profit to R376m in the six months to December, as Australia’s buoyant residential building market offset declining revenues in SA. “Two or three years ago we used to build apartments that were 30 storeys high in Australia,” CEO Louwtjie Nel said. “Currently we are building apartments that are about 92 storeys high.”

Asian investors were commissioning high rises to cater for demand from students, mostly from China. Australia was responsible for more than half the group’s R15.4bn revenue.

Mr Nel said the company had achieved a turnaround in its Australian operations, after learning some crucial lessons when it incurred losses on three civil works contracts in the oil and gas sector. “Last year we made no profit because of those, but we learnt our lessons very quickly,” Mr Nel said.

The company had then put more focus on the residential market, especially in Melbourne and Sydney.

Aveng’s earnings dropped a hefty 36% to R230m in the six months, reflecting its heavy reliance on the weak local construction market where infrastructure spending has slowed down.

The company would sell its steel business and “monetise” Aveng Capital Partners, its investment business, to cut costs, CEO Kobus Verster said.

This is after Aveng axed about 5,000 employees during the period — 20% of whom were permanent staff.

The company’s local construction business, Grinaker LTA, is also looking to sell shares to black investors to help it qualify to tender for government contracts, particularly from municipalities. Grinaker hopes this will help it pare losses.

The Aveng Steel division, which more than doubled its operational loss to R146m, had already received several offers from both local and foreign investors, Mr Verster said.

But he indicated there would be no fire sale. “If we can’t get value for it, we will keep it.”

The steel division sale, empowerment deal, and monetisation of the investment unit would help improve return on invested capital in the medium term, Mr Verster said.

Aveng’s mining order book dropped 20%, its local (including Africa) construction order book rose 5% to R7.7bn, while its Australian and Asian orders grew 8% to A1.3bn for the next two years. Australia generates R2.5bn of Aveng’s R18bn in sales.

WBHO’s R35bn total order book is also heavily weighted towards Australia, where it hopes to complete projects worth R23bn in the next year.

Both construction companies, however, remained bullish about the domestic commercial building market.

WBHO said it had a healthy project pipeline for building work, while Aveng said new orders had grown 67% in the second quarter, and that the short- term outlook remained positive.

Source: Business Day

Last modified on Thursday, 14 September 2017 14:00

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